Simon Haeder: Negotiated prescription drug prices to save billions

By SIMON HAEDER
Of Texas A&M University

The Biden administration has announced reduced prices negotiated with pharmaceutical companies for the first 10 drugs on its target list.

Provisions authorizing these negotiations were part of the Inflation Reduction Act, which took effect in 2022. However, the first set of reduced prices aren’t scheduled to take effect until 2026, with other reductions to follow as they are negotiated over ensuing years.

The drugs are purchased through Medicare Part D, a prescription drug coverage program for Americans and older.

The initial 10 were used by 9 million Medicare beneficiaries in 2023, and accounted for $56.2 billion in total Medicare spending. Had the negotiated prices been in place that year, Medicare would have saved $6 billion, according to government estimates.

Medicare will soon begin to negotiate prices for more drugs, including 30 over the next two years. If the policy continues to move forward as planned, the drug price negotiation provision is expected to save the U.S. government about $98.5 billion by 2031.

To put this in perspective, total annual spending on prescription drugs in the U.S. exceeds $405 billion. Medicare Part D accounts for $215 billion of that.

As a scholar who researches the politics of health policy, I remain skeptical that the negotiations will end up having a substantial impact on the U.S. health care system in the foreseeable future, even if the law survives ongoing legal and implementation challenges.

I expect that many older adults will reap substantial savings on their out-of-pocket spending on prescription drugs over the coming years. However, I think even greater impact will come from other provisions of the Inflation Reduction Act.

The Inflation Reduction Act allows the Centers for Medicare & Medicaid Services to negotiate prices with the companies that make some of the most expensive drugs in the Medicare program, including life-saving cancer and diabetes treatments like Imbruvica and Januvia.

Democrats have hailed these drug-pricing provisions as game-changing. Vice President Kamala Harris, who is now running for president, is making efforts to rein in drug prices part of her campaign.

Though public opinion polls show overwhelming public support for the policy, former President Donald Trump has been relatively quiet on the issue.

The Biden administration hopes some of the cost savings will be passed down to Americans 65 and older through reduced Medicare Part D premiums and lower out-of-pocket costs. The White House also hopes to reduce the federal deficit by $237 billion.

While negotiations over Medicare drug prices have received the most attention, in fact, other provisions of the Inflation Reduction Act might ultimately prove even more beneficial for older adults.

These include limiting out-of-pocket spending by older adults on prescription drugs to no more than $2,000 annually by 2025, limiting the growth of Medicare Part D premiums, providing rebates if certain drug price increases outpace inflation, eliminating out-of-pocket costs for vaccines and providing premium subsidies to low-income people 65 and up.

Despite their vocal opposition and their ongoing public relations campaign that has attacked this process, all affected U.S. drugmakers decided to engage in the price negotiations.

The daunting alternatives, including paying a penalty that could run as high as 95% of their U.S. pharmaceutical product sales, and a requirement to pull their drugs from the Medicare and Medicaid markets, proved strong incentives.

However, the manufacturers have been fighting the measure in court. And despite several losses, this will likely continue for the foreseeable future, with uncertain outcomes.

Americans pay substantially more for prescription drugs compared with people who live in countries with similar economies. For example, per capita pharmaceutical spending in the U.S. amounted to $1,432 compared to $1,042 in Germany and $766 in France in 2022.

The reasons for this disparity are multilayered and include the overall complexity of the U.S. health care system and the lack of transparency in the drug supply chain. Of course, many other countries also directly set prices for drugs or use their monopoly over health services to drive down costs.

Drug costs impose a big burden on Americans. People who are 65 and older are particularly affected, with one in five not taking all of their medications as prescribed due to high costs.

In my view, the government’s efforts represent a step in the right direction. The potential for real savings for Americans 65 and older will undoubtedly grow as more drug prices are negotiated. Yet, some real concerns remain.

Even if the negotiated lower prices survive the industry’s legal challenges, it’s possible that future Republican administrations won’t embrace this policy, as Republicans have historically opposed price negotiation authority for Medicare.

And the true effect for beneficiaries will likely be much smaller than it appears. That’s because both the Medicare program and beneficiaries already receive discounts on many of these drugs that will now be eliminated.

In addition, the pharmaceutical industry has a history of skillfully exploiting loopholes, and that could further limit the financial impact. Manufacturers have already told shareholders that they expect limited impacts on their profits.

It’s also too soon to tell if this is going to be a win for all Americans. It’s possible Americans not covered by Medicare may actually see prices go up, even on the same drugs, as the industry attempts to mitigate the adverse impact on its revenues.

From The Conversation, an online repository of lay versions of academic research findings found at theconversation.com/us. Used with permission.